Sunday, May 31, 2015

We like to think or
perhaps, we like to hope, that our politicians at least have the capacity to
speak from a point of knowledge. Unfortunately, Lindsey Graham, yet another Republican candidate for President has shown us that he speaks from a point of
complete ignorance.

Let's start with this
video where he speaks about how he fears Iran more than he fears
ISIL:

Now that we have Mr.
Graham's take on the Iranian evil that lurks in the Middle East, let's get his
comments on what he distrusts Iran so much, noting that this
commentary was given to the Southern Republican Leadership
Conference in late May (his comment about Iran can be found at the 2 minute mark) and how his prescience about the Iranian nuclear deal relates to his parent's ownership of a pool hall in Central, South Carolina (population 5159):

Here's the quote:

"Everything I learned
about Iranians I learned working in the pool room. I met a lot of liars,
and I know the Iranians are lying.".

He also goes on to state that the "Iranians cheat and they lie. They are a radical regime. They want a master religion for the world; the Nazis wanted a master race.".

Earlier in
May, Senator Graham made the incredibly intelligent observation at the AIPAC (American
Israeli Public Affairs Committee) New England Leadership Dinner that
"everything that starts with "al" in the Middle East is bad
news", using the examples of al-Qaida, al-Nusra and al-Qaida in the Arab
Peninsula. What he seems to have either forgotten (or never known)
is that "al" is the Arabic word for "the" and
that it usually appears before Arabic proper nouns including personal and place
names. While Mr. Graham has deflected criticism of his lack of
linguistic skills by maintaining that this is a long-standing
"joke" rather than a policy statement, at the very least, it shows a
significant lack of class and adds to his buffoonery quotient. On top of that, the fact that he is basing his decisions on any deal with Iran on his experiences with Iranians working in his family's pool hall decades ago is completely unacceptable and more than a bit frightening.

Friday, May 29, 2015

Since the end of the
Great Recession, American economic growth rates have been quite modest,
particularly when compared to historical levels as shown on this chart:

Real growth rates (i.e corrected for inflation) of the
economy look even worse as shown on this chart:

As we can see on this graph from FRED, personal consumption
expenditures have made up an increasing part of GDP, rising from 58.5 percent
in the late 1960s to 69 percent in 2011:

In the first quarter of 2015,
personal consumption expenditures made up 68.4 percent of GDP. This means
that the growth rate of the American economy is highly reliant on growth in personal
consumption levels. Unless households have a sense of confidence in the
economy, they will modify their expenditures, a factor
that has become apparent since the end of the Great Recession as shown on this
chart:

In May 2015, the Federal
Reserve released its annual "Report on the Economic Well-Being of U.S. Households in
2014". In this report, the Federal Reserve gives us a
sense of where the economy is headed, based on the sense of economic well-being
of American households. Here is a summary of some key aspects of the
data:

1.) Economic Well-being: Respondents were asked to compare their current financial situation to their situation five years previously. While the percentage of households that felt that they were much worse off in 2014 dropped compared to 2013, 27.6 percent of households still felt that they were worse off in 2014 than they were in 2009 as shown on this table:

Overall, 23 percent of respondents felt that they were worse off than their parents were at the same age while 52 percent said that they were better off than their parents.

2.) Economic Fragility:
Here is a graphic showing the percentage of households that could pay off an
emergency expense of $400 using either cash or a credit card that is paid off
in full at the end of the month:

Note that a majority of
households of all ethnic and racial groups making less than $40,000 annually
have not saved $400 for emergency expenses. Overall, just 53 percent of
respondents said that they would be able to handle an emergency expense of $400
fairly easily with 47 percent stating that an unexpected expense of this type
would prove to be problematic. Overall, only 45 percent of respondents indicated
that they have set aside a rainy day fund that would cover three months of
expenses.

3.) Household Spending
and Income: Here is a graphic showing the percentages of households (by
income) that spend more than their income, spend their income or spend less
than their income:

Overall, 41 percent of
respondents stated that they spend less than they earn, 37 percent state that
their spending is equal to their income and 20 percent state that they spend
more than their income. This is most obvious for lower income households,
however, 15 percent of households earning more than $100,000 annually still
spend more than they make.

Here is a graphic showing
the percentage of household income saved for each income group:

Thirty percent of
respondents stated that they saved nothing over the past year.

4.) Access to Banking and
Credit: Here is a table that shows the percentage of households of each
income group that are fully banked, underbanked (i.e. they have a bank account
but also use an alternative source of banking such as a pawn shop loan, payday
loan etcetera) and unbanked (i.e. they have no bank account of any type):

Overall, 7.6 percent of
respondents have no banking services of any type and a further 12.2 percent are
considered to be underbanked.

Here is a table that
shows the percentage of respondents who applied for credit during 2014 that
have been denied credit, offered less credit than they applied for or have put
off applying for credit because they expected to be denied:

If the entire population
of both those who applied for and did not apply for credit are included, 16
percent of respondents were either denied credit, offered less credit than they
applied for or put off applying for credit because they expected to be denied.

5.) Retirement:
Here is a table that shows how much thought American households have
given to planning for retirement by household income:

A total of 39 percent of
respondents stated that they had given either "a little thought" or
"none at all" when it came to retirement planning. The higher
income households have, in general, given more thought to retirement whereas
51.4 percent of households earning less than $40,000 annually have given little
or no thought to funding their retirement. Overall, only 21.6 percent of
respondents of all income groups expect to have a traditional retirement where
they work until they retire and then stop working all together as shown on this
table:

When looking at both
pensions and savings for retirement, 31 percent of non-retired respondents had
no pension or savings of any type. Among respondents, only 42 percent of
those making under $40,000 annually have any retirement savings compared to 82
percent of households with incomes greater than $100,000. A total of 45
percent of all respondents expect that they will have to work in some capacity
to cover their household expenses when they retire and 26 percent expect that
their spouse will also have to continue to work.

It is interesting to see
that, six years into the post-Great Recession recovery, a significant portion
of American households, particularly those with incomes under $40,000 annually,
face future economic difficulties because they have no savings, no ability to
cover emergency expenses and no retirement plan other than working until their
health prevents them from doing so. In large part, the results of this
annual poll by the Federal Reserve show us why economic growth rates continue
to be modest at best. American households are not feeling terribly
optimistic about the future and their pessimism goes a long way to explaining
why, despite the Fed's near-zero interest policy, household consumption is
growing at much lower rates than in the past.

Thursday, May 28, 2015

In recent days, China has made it quite clear about the direction it will be taking in the future with its military and the role that it wishes to play on the world stage. In this two part posting, I will first look at the two recent statements from China and follow it with a second posting that looks at the actions that China has taken to implement its stance.China's Information
Office of the State Council, the chief administrative body of the Chinese
government, recently published a white paper on China's military strategy.
This is particularly interesting given that a recent
editorial in the Global Times, a tabloid newspaper owned by the
ruling Communist Party's official People's Daily newspaper, stated the
following:

"Experts on Sunday
warned of a potential military conflict over heightened US surveillance in the
South China Sea and cautioned that both sides should try their best to avoid
miscalculation in the world's most important bilateral relations.

Analysts believe that
recent US military activity is another example of how the US is struggling to
maintain the status quo while coping with the rise of China as a global power.
They urge the US to face up to the reality that China is becoming a maritime
power and that China's determination to protect its sovereignty should not be
underestimated.

"The South China Sea
issue makes up a small portion of Sino-US ties," wrote Cen Shaoyu, an
international relations commentator. "Leaders from both countries should
understand that the future of China and the US, as well as the future of Asia,
are far beyond just that."

China electronically
jammed Global Hawk long-range surveillance drones spying on China's Nansha
Islands, a possible attempt to capture a Global Hawk by causing one to crash in
shallow waters, or to snatch one in flight using a manned aircraft, The
Washington Free Beacon reported on Friday.

Disclosure of the jamming
came as a US P-8A anti-submarine and maritime surveillance aircraft flew over
waters off China's Nansha Islands for reconnaissance activities on Wednesday.

It is the US that
travelled thousands of miles to China's doorstep to force China to safeguard
national territorial sovereignty and maritime interests, Peng Guangqian, a
specialist in military strategy at the PLA Academy of Military Science, told
the Global Times.

"China's responses
were justified acts of self-defense when the US flights approached China's
territory and were in accordance with international practice," Tao
Wenzhao, a research fellow with the Institute of American Studies at the
Chinese Academy of Social Sciences, told the Global Times.

China will very likely
strike back if the US comes within 12 miles of the islands, Peng said, adding
that the US was deliberately provoking China.

"The US provocation
has boosted the chance of military confrontation between Beijing and
Washington," Zhu Feng, director of the Collaborative Innovation Center of
South China Sea Studies under Nanjing University, told the Global Times.

Once China dispatches
aircraft to drive away the US fighters, both sides are likely to exchange fire
due to high flight speed, Zhu said.

"The reconnaissance
conducted by the US military aircraft poses a potential threat to the security
of China's maritime features, and is highly likely to cause miscalculation, or
even untoward maritime and aerial incidents," Hong Lei, a spokesman for
China's Ministry of Foreign Affairs, told a regular press conference on
Friday.

The presence of the US
military in the South China Sea also encouraged countries neighboring the
waters to increase military build-up, making the region more unstable and
deterring peaceful settlement through dialogue, said Jin Canrong, vice director
of the School of International Studies at Renmin University of China." (my bold)

The recently released white paper mentioned above pays particular attention to the potential for
conflict in the disputed Spratly and Parcel Islands
as shown on this map:

Some of these
"islands" are little more than low relief reefs with many being fully submerged.
In total, six nations including Brunei, China, Malaysia,
Philippines, Taiwan and Vietnam all have competing claims based on historical
reasoning and the principles of proximity and continental shelf.
Obviously, from a global strategic standpoint, China's claim is the most
threatening to U.S. global hegemony.

Now, let's look at a quote from the white paper that give us a sense of China's military
agenda:

"As the world economic and strategic center of gravity is
shifting ever more rapidly to the Asia-Pacific region, the US carries on its
"rebalancing" strategy and enhances its military presence and its
military alliances in this region. Japan is sparing no effort to dodge the
post-war mechanism, overhauling its military and security policies. Such
development has caused grave concerns among other countries in the region. On
the issues concerning China's territorial sovereignty and maritime rights and
interests, some of its offshore neighbors take provocative actions and
reinforce their military presence on China's reefs and islands that they have
illegally occupied. Some external countries are also busy meddling in South
China Sea affairs; a tiny few maintain constant close-in air and sea
surveillance and reconnaissance against China. It is thus a long-standing task
for China to safeguard its maritime rights and interests. Certain disputes over
land territory are still smoldering. The Korean Peninsula and Northeast Asia
are shrouded in instability and uncertainty. Regional terrorism, separatism and
extremism are rampant. All these have a negative impact on the security and
stability along China's periphery"

Obviously, like the Soviet Union in the post-World War II era, China is feeling threatened along its margins.

Here is another quote:

"China's national strategic goal is to
complete the building of a moderately prosperous society in all respects by
2021 when the CPC celebrates its centenary; and the building of a modern
socialist country that is prosperous, strong, democratic, culturally advanced
and harmonious by 2049 when the People's Republic of China (PRC) marks its
centenary. It is a Chinese Dream of achieving the great rejuvenation of the
Chinese nation. The Chinese Dream is to make the country strong. China's armed
forces take their dream of making the military strong as part of the Chinese
Dream. Without a strong military, a country can be neither safe nor strong. In
the new historical period, aiming at the CPC's goal of building a strong
military in the new situation, China's armed forces will unswervingly adhere to
the principle of the CPC's absolute leadership, uphold combat effectiveness as
the sole and fundamental standard, carry on their glorious traditions, and work
to build themselves into a people's military that follows the CPC's commands,
can fight and win, and boasts a fine style of work...To implement the military
strategic guideline of active defense in the new situation, China's armed
forces will adjust the basic point for PMS (preparation for military struggle).
In line with the evolving form of war and national security situation, the
basic point for PMS will be placed on winning informationized local wars,
highlighting maritime military struggle and maritime PMS. The armed forces
will work to effectively control major crises, properly handle possible chain
reactions, and firmly safeguard the country's territorial sovereignty,
integrity and security." (my bold)

In part two of this posting, we will take a closer look at how busy China has been in the South China Sea and what efforts are being made to solidify its claim on the region. In any case, at the very least, the region is taking on the appearance of becoming the world's next "hot spot", particularly in light of China's recent comments on its military and the role that it wishes to play on the world stage.

Wednesday, May 27, 2015

Recent comments from
Senator Elizabeth Warren succinctly explain why Washington is
"broken". Here are her comments from the recently held Re/code Conferencewhich was held in Rancho Palos Verdes in California:

Here is the question:

"How am I or the
fifty percent of people who can vote or don't supposed to actually believe any
politician that says we are going to rebuild this country, energy
infrastructure, internet infrastructure, education all these things matter. I
believe that. And with interest rates this low, it makes sense for us to issue
paper on 30 or 100 year notes to rebuild America. Why aren't we doing
that?"

Here is Senator
Warren's response (in part):

"It's exactly the
right question. We are not doing it because the people in Washington, too many
of the people in Washington, do not represent the folks who elected them. They
represent the rich and the powerful who don't want their taxes raised, who
don't want to see any change. Who are perfectly happy with things where they
are, indeed they're doing great with things where they are. And they stay in
the ear of enough of the folks in Washington that it has made it impossible to
get any kind of change. The only way we get change is when enough people in
this country say I'm mad as hell and I'm fed up and I'm not going to do this
anymore. You are not going to go back and represent me in Washington, DC. if
you are not willing to pass a meaningful infrastructure bill. If you are not
willing to refinance student loan interest rates and stop dragging in billions
of dollars in profits off the backs of kids who otherwise can't afford to go to
college."

Given that a recent study
by the Sunlight Foundation and the Center for Responsive Politics noted that
31,976 donors or one percent of one percent of the total population of the
United States accounted for $1.18 billion or 29 percent of all disclosed
political contributions during the 2014 election cycle and the fact that this
group has grown in influence over the past three election cycles as shown here:

...it is no wonder that
American voters are becoming increasingly angry, disconnected and
apathetic toward politics and politicians in the United States.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.